Will it go the Saffron way? Can the so-called secular combine of SP-Congress come out trumps or will the BSP spring a surprise? Answers to all that will be clear when the results for the fiercely contested UP assembly elections start trickling in from Saturday morning.

As far as the stock market is concerned, it is cautiously optimistic about a BJP victory. Since the elections began on February 11, the Nifty and Sensex have edged up 1.5% and 2% respectively, till date. Interestingly, over the same period, FIIs bought ₹17,441 crore worth of stocks even as domestic investors cashed out, selling ₹5,214 crore worth of shares.

Investors believe a strong show will strengthen the Modi government’s resolve to pursue its reform-oriented policies as it will manage a higher number of seats in the Rajya Sabha, where it is currently outnumbered by the opposition. A favourable outcome would also mean that voters have given a thumbs-up to Modi’s much criticised demonetisation move.

Though five of the seven exit polls don’t foresee the BJP crossing the 202-mark needed to form the government, the chance of a deep correction, post the results, looks unlikely. At best, the reversal of fortunes will prove to be a temporary spoiler. Market experts believe the impact will be more short-term as the focus shifts to earnings and growth.

Ambareesh Baliga, an independent market expert, says: “If exit polls are any indication, BJP is not getting a clear majority. But if they are able to form a government by forging an alliance with another party, the market would react positively to this. In that scenario, the market can even make a new high. Any other outcome, would take the market down. But it won’t last beyond 7-10 trading sessions.”

The view is that the market will look at other cues that influence its trajectory. Kunj Bansal, CIO, Centrum Wealth Management, points out that historically, assembly elections results haven’t influenced the market much. “While the Street has priced in the possibility of BJP winning, it will take any negative outcome in its stride just like it did with Delhi and Bihar elections. The focus would shift to fundamentals irrespective of the outcome.”

Concurring with Bansal is Kamlesh Kotak, director – equity research at Asian Market Securities, “The monsoon forecast and earnings numbers are what the market would be more worried about.” The Bloomberg consensus EPS estimate for the Sensex was ₹1,540 for FY17 and ₹1,848 for FY18 on 8 November when demonetisation was announced. Since then, it has been revised downwards to ₹1,435 for FY17 and to ₹1,722 for FY18.

Though foreign institutional investors have been on a buying binge, Bharat Iyer, head of research at JP Morgan, believes that fund flows will not be solely dictated by how UP votes. ”There are both domestic and global cues that the market has to contend with post-UP elections. Trump, for example, would be a major factor.”

Currently, the benchmark Sensex is trading at a one-year forward multiple of 18x, slightly above its 10-year average of 17.2x. If the BJP loses, the market could easily give up the 2% gain it has made since the polls began. If not, the party could well continue.

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